More than a decade after he retired from Indalex Ltd., the aluminum processing company was granted protection from its creditors. Within weeks of the filing this past April, a substantial portion of his retirement income evaporated - along with the retirement incomes of several other senior executives.

"It was kind of like a lightning bolt," says Mr. Carruthers, who retired at age 56 after 13 years as president of Indalex. "All of us are going to lose half to two-thirds of our pension. All of us are long-term employees who worked for the company for many, many years. That just leaves a real sour taste in your mouth."

They are among the hidden victims of the Great Recession. In the year-long economic slump that is the most severe Canada has experienced since the early 1990s, 357,000 people have lost their jobs - in every sector of the economy, and at every level of the work force.

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But the meltdown has also had a devastating impact on a group that does not show up in the monthly unemployment statistics: the retired. Already hobbled by an aging work force and companies' gradual move away from guarantees for retired workers, Canada's pension system has been pushed to the breaking point by the downturn. Now, millions of blue-collared workers, salaried employees and professionals - both the retired and those still working - are facing starkly scaled-down retirement dreams.

If there is a sector of the economy that shows the pension crisis at its worst, it is manufacturing. Once well over 20 per cent of Canada's GDP, it has shrunk relentlessly - and so has its capacity to pay for the pension promises made in brighter days.

Within the factory sector, the unravelling of Canada's pension system has become such a massive and broad-based problem that it is has reached the people at the very top of the corporate hierarchy: executives like Mr. Carruthers.

Many company pension plans have been left badly underfunded by market volatility and more pressing demands on their cash resources, leaving retirees with smaller plans. But the most dramatic impact on employees and pensioners has been at failed companies where pensions have evaporated in bankruptcy proceedings.

Bankruptcies, liquidations and filings for protection under the Companies' Creditors Arrangement Act (CCAA) have surged, including such legendary Canadian titans as AbitibiBowater Inc. and Nortel Networks Corp., to name just two. And if manufacturing companies such as Indalex have been among the hardest-hit, they may also be the least likely to recover. "As soon as [a] company goes into CCAA, it's basically like they just won the lottery and they can do whatever they want," says Mr. Carruthers, who lives in London, Ont. "I lose the lottery."

Hundreds of other former Indalex Ltd. employees and executives - many of whom left the company years ago - are now facing up to the same lottery loss as Mr. Carruthers. Their story, and the story of the company they helped to build and then watched flounder, shows how the recession reached deep inside the North American manufacturing sector to redefine retirement.

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An acquisition too far

Indalex, which is based in Lincolnshire, Ill., is far from a household name. It began life in North America in 1964, when an ex-Alcan Inc. engineer and a colleague at a British-based company called Pillar Holdings Ltd., bought a small Canadian aluminum extrusion company.

In the unglamorous business of aluminum extrusion, which involves melting the metal and stretching it into strips for use in windows, doors, boats and other products, Indalex grew along with the Canadian and U.S. economies to become a North American leader. In Canada, the company expanded to Calgary, Montreal and Port Coquitlam, B.C.

Indalex saw its fortunes rise in an era when the burgeoning North American manufacturing sector held out the promise of well-paying jobs that provided a stable, middle-class living. Those jobs also carried the promise of a decent pension at retirement after a working life.

Indalex made that promise to its employees. For its growing ranks of unionized workers in Canada, the company participated in a multi-employer pension plan, which spread the pension costs and risks over a number of companies in the manufacturing sector. Mr. Carruthers and other executives were entitled to an enhanced package, with a supplemental retirement plan in addition to a regular executive pension plan.

Mr. Carruthers rose up the ladder at Indalex as the company expanded. Appointed president of the company's Canadian operations in 1986, by the early 1990s, he was running its entire North American business out of Toronto. By then, Indalex was owned by Britain-based Caradon PLC and had moved into the U.S. market and was operating a handful of plants there.

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The company took a step that would later contribute to its eventual collapse when its parent company purchased Easco Inc., an Ohio-based aluminum company, in 1999. That boosted Indalex's U.S. presence to 15 plants and three casting facilities, and made the company much more reliant on the U.S. housing market just as it was taking off.

The deal led to almost a decade of restructuring.

By 2005, Caradon was bought by Honeywell International Inc., which flipped it a few months later to private equity firm Sun Capital Partners Inc.

That year, Indalex's unfunded pension liability jumped to $42.5-million (U.S.). Rising pension liabilities increasingly were becoming a problem for manufacturers as work forces aged and downsizing reduced the number of employees paying into the plans.

By the end of 2007, in the final annual report the company would submit to U.S. securities regulators, Indalex had managed to shrink its pension deficits down to $10.3-million. But it was also beginning to wrestle with a bigger problem: the collapse of the U.S. housing market. Residential construction made up more than one-quarter of its $1-billion in revenue, but it was slowing.

Then, last year, the price of aluminum crashed, forcing Indalex to meet margin calls on hedging contracts for the metal. Meanwhile, interest on its debt had risen to $35-million a year by 2007, partly because of high-interest debt Sun Capital had taken on to finance the purchase of the company. The credit crisis made it difficult to refinance, court filings show.

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With revenue sliding, the company struggled to make its payments. Then aluminum giant Alcoa Inc. drove in the final stake by seeking repayment of $6-million it was owed. Indalex's U.S. operations were forced into Chapter 11 bankruptcy protection. The Canadian unit, running out of cash, soon followed.

Laid off from his factory job of 40 years, he's living on a pension that's underfunded by 10 per cent

The goalposts are moved

None of those problems should have been a worry for Mr. Carruthers and 12 former executives of the Canadian operations. Within days of the CCAA filing, however, Mr. Carruthers received a letter saying the supplemental executive retirement plan that was paying him $3,700 (Canadian) a month was being eliminated.

He is also concerned that his regular pension plan will be cut from its $4,000-a-month level. Are there going to be lifestyle changes?" he asks. "Yes, there are going to be lifestyle changes. We just have to cut back on everything we're doing."

Such issues are painful to discuss publicly, adds Bob Leckie, who was Indalex's general counsel, but has left the company and is now a consultant in San Antonio, Tex.

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"In our generation, we defined ourselves by our work," Mr. Leckie says. "We're the generation that when they first started losing their jobs, instead of telling their wives and families, they put their suit and tie on every morning and went out of the house because they were too ashamed to tell their families."

Mr. Leckie points out that annual registered retirement savings plan contributions were strictly limited for the executives because of the size of the pensions they were supposed to receive.

That's fair and reasonable, he acknowledges. "But it's based on the fact that you're going to collect the pension. The linkage broke down in the oversight of these pensions … The government had the power and the ability to ensure that it wasn't underfunded."

The group of retired executives has asked the Ontario Superior Court to restore the supplemental retirement plan, including arguing that the $3.2-million that represents the windup liability is a relatively small amount of money.

Mr. Justice Geoffrey Morawetz, who is overseeing the case, has dismissed that argument. "While this submission may be attractive on the surface, to give effect to this argument would violate a fundamental tenet of insolvency law, namely, that all unsecured creditors receive equal treatment," Judge Morawetz wrote.

It's that same legal principle that has stymied pensioners in other insolvent companies as they try to keep their retirement plans intact. Nortel retirees - who find themselves among unsecured creditors fighting over scraps from the sale of the company's assets - are lobbying for changes to insolvency and bankruptcy laws.

They plan to take their case to Parliament Hill on Wednesday, when they will hold a rally. The approximately 17,500 pensioners should rank higher in the pecking order than other unsecured creditors and especially bondholders, who are protected by credit default swaps and claims against Nortel assets in the United States and Britain, argues Don Sproule, who heads the Nortel retirees committee.

The Canadian pension plans have assets that cover about 69 per cent of their liabilities, he says, so Nortel retirees stand to lose about one-third of their pensions if they don't move up in the pecking order.

"We all sink to the bottom. We don't know what we're going to get," adds the 59-year-old engineer, who retired from Nortel in 2003 after 27 years.

Although Mr. Sproule believes his argument is gaining some traction in Ottawa, he's up against financial institutions and corporations that hold a lot of sway. Claude Mongeau, the incoming chief executive officer of Canadian National Railway, argues that changing legislation to give pensioners a higher claim than bondholders in a bankruptcy proceeding could make it harder for companies to raise money in the capital markets.

Typically, Mr. Mongeau argues, bondholders will recover 30 cents on the dollar in a bankruptcy. If a pension has a 10-per-cent shortfall "is it fair to give that 10 per cent priority over the guy who is going to lose 70 per cent? I think there is an issue of that nature."

With files from reporter Janet McFarland

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